Word count plus executive summary: 997; excluding executive summary: 868
Apple’s Falling Shares Problem
Introduction/Executive Summary
The purpose of this report is to analyze the problem that Apple Inc. is facing regarding its falling shares so as to offer a solution by exploring various recommendations for plan of action. Recently, Apple slashed orders for the latest versions of iPhones introduced in September 2018. As a consequence the shares fell by 4 percent according to the Market Watch reports (ANNUAL REPORT… 110). The first recommendation is focus on the international/developing market; the second recommendation is to roll out the three models as different versions across a timespan; and the third is to cut down on the prices and focus on the service business. It is highly recommended that Apple Inc. cut down on iPhone prices and invest more in the services business (Chulkov, 16).
Problem identification
According to reports by CNBC (8) are reported by its correspondent Imbert, the Wall Street Journal reported, citing personnel who are familiar with Apple’s situation that the company had slashed its orders of the phone models introduced in September namely iPhone XR, XS and XS Max. The company informed its suppliers about its plan to slash the production of the XR model by one third which converts to approximately a third of the 70 million units it had ordered for the September to February window. As a consequence the shares of the company feel by 4 percent and its stock has been under pressure, amid fears that the prices of the iPhone might slow down in the future (Imbert, 124). Investors have been worried about iPhone sales which is the reason for the falling shares.
Evaluation of Possible solutions to the Problem
I. Focus on the International Market
Currently, the issue of market saturation is a serious issue that is facing Apple Incorporation. The main reason why the production of the latest models of the iPhone was cut down is due to the weak demand that the market has responded with (Johnson, et al, 49). The market in the US is already saturated with the earlier versions of the iPhone and hence it would be advisable to focus on the international market for a change. The developing Asian market for instance would be areas where Apple Inc. could focus its marketing energies on and engage in a marketing campaign that focuses on the developing market segment. China is a bit established market and the Indian market is an emerging market, for instance, and it is here that Apple still has some room to run (Imbert, 31). To ensure growth in the long-term, it would be a great idea to focus a new strategy on the emerging market. The advantage with this option is that it will be easy since the international quest for Apple has been going for a while; however, a demerit is that it will take time and cost the company.
II. Focus production on one Model at a Time
The three iPhone models – XS, XR and Max- were all launched in September. Bearing the iPhone saturation that is already being witnessed in the Apple market currently, weak sales was almost a guarantee (Kim, 18). Worse still, following the first announcement to cut down the production of iPhone XR by one third on November 19, the decision has been followed by another announcement barely a week later to cut even more on the production of this model and the other two. The problem with Apple Inc. in the past has been mentioned as longer upgrade cycles for the iPhone (Monica, np). With these three already in the market, it would be advisable to treat them as upgraded versions of one another and introduce them in the market using shorter upgrade cycles for 2019 and 2020, most probably. The advantage of this option is that the models have already been designed and rolled out; however, the demerit in it is that some people already acquired the models and new additions will be needed to make them unique.
III. Cut down iPhone Prices and Focus on the Service Business
In the past years, Apple Inc. has responded to reduced smart phone sales by increasing their prices which has helped to skyrocket the revenues of the company even when the industry was contracting (Market Watch, np). However, with the US and global growth expected to slow down, it is time to reconsider this strategy. Apple demands $750 for its cheapest of its new models which is risky in the case of an economic slowdown, as can be seen with the current situation (Monica). Reducing the prices would boost sales and provide the company with an opportunity to focus on the services business which includes Apple Music, Apple Pay, and the App Store. These seem to be the biggest hope for growth drivers given its large user base (Baccardax, 23). The advantages of this option are: more income will be realized, this would imply clearance sales, and the company will offset its financial deficit.
Recommendations
While all solutions seem plausible, it is highly recommended that Apple Inc. consider the third option which involves cutting down prices to boost sales, and also focusing on the service business. Cutting down prices will revive demand and increase sales for the new iPhone models which will cut down uncertainties among investors (Spence, np). Additionally, the company has already set its sights on the service business aiming to book $50 billion in services revenue by the year 2020 (Pressman, 14). Drawing on its large user base, a new strategy focused on investing mostly on the service business would realize larger revenue projections within this period. The company however needs to move fast so as to engage investors by sharing its plans for movies, television, and its goals to break into the health industry as part of its services business (Spence, 16). The company will need to slowly adjust to a business driven by smaller, regular payments as a replacement for large hardware payments, as a creative strategy for the services business (Mellor, 27).
Works Cited
Baccardax, Martin. “Apple Stock Falls Some 4% on Reports of IPhone Production Cuts.” TheStreet, TheStreet, 19 Nov. 2018, www.thestreet.com/investing/stocks/apple-extends-slump-after-wsj-reports-production-order-cuts-for-new-iphone-suite-14785493.
Imbert, Fred. Apple Shares Fall into Bear Market Again after Report of Slashed IPhone Production Orders. 19 Nov. 2018, www.cnbc.com/2018/11/19/apple-shares-fall-on-report-of-slashed-iphone-production-orders.html. Accessed 29 Nov. 2018.
Market Watch. “Investing: Stock - Apple Inc.” MarketWatch, MarketWatch, 2018, www.marketwatch.com/investing/stock/aapl.
Mellor, Beth. “Apple Shares, Suppliers Fall After IPhone Order Cut Report.” BloombergQuint, Bloomberg Quint, 10 June 2018, www.bloombergquint.com/business/apple-drops-in-europe-trading-after-report-on-iphone-order-cut#gs.36ettoU.
Monica, Paul R. La. “Dow Closes down 396 Points as Facebook, Apple Stocks Fall.” CNN, Cable News Network, 19 Nov. 2018, edition.cnn.com/2018/11/19/tech/apple-stock-iphone-demand/index.html.
Pressman, Aaron. “Tech Stocks From Apple to Amazon Got Crushed Today. Here's Why.” Fortune, Fortune, fortune.com/2018/10/10/stock-market-news-today-apple-amazon-facebook-google/.
Spence, Ewan. “Latest IPhone X Shock Reveals Apple's Growing Nightmare.” Forbes, Forbes Magazine, 2 Apr. 2018, www.forbes.com/sites/ewanspence/2018/03/19/apple-iphone-iphonex-iphonexse-sales-disaster-problem/#46fe47d1528e.
“ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 2017.” AND EXCHANGE COMMISSION, Washington, D.C. 20549, 30 Sept. 2017, www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_AAPL_2017.pdf.
Chulkov, Dimitriy V. “Economics of Apple Iphone: Price Discrimination or Pricing Error?” Research Gate, vol. 20, no. 54, ser. 29, 1 Jan. 2016, pp. 49–53. 29, www.researchgate.net/publication/281595438_Economics_of_apple_iphone_Price_discrimination_or_pricing_error.
Kim, Tae. “Apple Shares Fall Again on Another Report of Fading IPhone X Demand.” CNBC Markets, 12 Feb. 2018, www.cnbc.com/2018/01/30/apple-shares-fall-again-on-another-report-of-fading-iphone-x-demand.html.
Johnson, Katherine, et al. “The Innovative Success That Is Apple, Inc.” Marshall University , vol. 1, no. 1, ser. 2012, 1 Jan. 2015, pp. 1–43. 2012, mds.marshall.edu/cgi/viewcontent.cgi?article=1420&context=etd.
